Boosters of Allentown's proposed hockey arena complex have boasted how the state will foot the bill by coughing up a portion of locally generated state taxes.

What they haven't been making noise about is this: The city and school district will help pay for the $80 million to $100 million stadium project in the same way.

Supporters have touted how the financing plan diverts state taxes generated within the borders of a 130-acre Neighborhood Improvement Zone to finance construction of a transformative arena project that could include a convention center and other amenities at Seventh and Hamilton streets.

"The NIZ is quite simple," Allentown Mayor Ed Pawlowski said in an email last week. "State tax dollars will be collected to pay for the building of a multipurpose events center/arena in Allentown. This could be a game changer for our city without costing the average resident one dollar."

That's how Sen. Pat Browne described the zone on his campaign website in 2010. Created using legislation he inserted into the 2009 state budget, the zone "invests state tax dollars back into blighted industrial sites" to promote commercial development and expand the tax base.

But it's not just state dollars. Local income and business taxes will also fund the arena.

Assuming the American Hockey League Phantoms play at the arena as scheduled in 2013, the local earned income taxes collected on their salaries will go, along with those players' state income taxes, into an improvement zone fund that will be used to pay off the arena construction loan.

There they will be combined with the state taxes and local earned income, business privilege and local services taxes being generated by every other business in the zone. After the loan is paid each quarter, leftover tax revenues will be forwarded to the state, city and school district. Property taxes will be untouched.

Browne said he's never tried to hide the fact that the plan diverts some local taxes to pay for the arena, but that they are a small part of the total, about 10 percent, according to the city's financial advisers.

"I've never taken that off the table. I have always been very clear that it includes state and local," the Lehigh County Republican said. "The point it wasn't printed [in media accounts] isn't my responsibility."

The bottom line, he said, is financial consultants project the zone won't cut into current tax revenues. And the future revenues it will tap wouldn't exist without the arena and affiliated development, he said.

"Future receipts coming off the zone will be more than sufficient to cover debt service for development and actually will be far in excess of that in order for us to return receipts back to the commonwealth and local jurisdictions, receipts they otherwise wouldn't have," Brown said.

Here's how it will work: The Pennsylvania Department of Revenue will collect all the state taxes generated within the improvement zone and transfer the money to a special fund. The city and the Allentown School District will collect the local taxes, excluding property tax, and send them to the state treasurer. Those funds will then be forwarded to the local authority that oversees the zone.

The local authority will put those funds into a pot and use what is needed to make arena construction loan payments. The authority will return the leftover cash to the city, state and school district on a pro-rated basis each quarter, according to the Revenue Department.

Details of the arena financing plan are still being hammered out, said Scott Shearer, managing director with PFM Group, which is acting as financial adviser on the project.

"All preliminary estimates are showing there is clearly enough revenue," he said. "That is why we are as far as we are right now." There are no guarantees, but he said the final plan will probably include a provision for a cash reserve fund to insulate state and local governments from having to dip into existing revenues.

Early payments on the construction loan will probably be kept low, possibly even limited to interest only, to allow the arena to get up and running, he said.

While both the House and Senate appropriations committees determined in 2009 that the plan will not have a negative impact on state revenues, the Revenue Department under new Gov. Tom Corbett has not done its own analysis of the improvement zone.

Revenue Secretary Dan Meuser said that would require knowing the boundaries of the zone, which have not been publicly released.

Meuser said he can't guarantee that the Allentown arena plan will be revenue neutral, but said the Revenue Department will administer the program assuming it will be, based on the Legislature's previous evaluations.

Critics say no projections are airtight and that arenas have been shown not to produce significant economic boosts to their host cities.

Andrew Zimbalist, economics professor at Smith College in Massachusetts and author of "Sports, Jobs and Taxes: The Economic Impact of Sports Teams and Stadiums," said he is skeptical that the financing plan will work the way proponents say it will. There are "lots of questions and potential problems," he said.

The complexity of the financing zone has led to a variety of interpretations of how it will work that have muddied the local debate.

Allentown City Councilman Michael Donovan has said his understanding is that the project will base improvement zone revenue on all business activity in the beginning to fund construction. Once the arena is built, only the new revenue from arena activity will be used to pay off the debt, he said.

"What you are detecting is that other people don't totally have the same understanding of the procedure," Donovan said.

Unable to get a clear answer on exactly how the zone will work, Allentown School Board member David Zimmerman tried in vain to calculate its effect on school district finances using tax maps.

He said state law that created the special taxing district is confusing and he believes city officials and state lawmakers have given conflicting accounts of how the arena financing will work.

City, county and school district property tax revenues will take at least a short-term hit when Allentown purchases the privately owned properties in the footprint of the arena complex and they come off the tax rolls.

Based on current millage rates, the estimated cost of the lost real estate taxes to the school district, city and county is about $257,684, with about $134,016 being shouldered by the school district.

That will be offset as privately owned property outside the arena footprint rises in value, Browne said. And Shearer said some of the property initially purchased by the city in the block between Hamilton, Linden, Seventh and Eighth streets could later be returned to the tax rolls under private ownership as details of the project fall into place.

Russ Mayo, the school district's deputy superintendent, said the district has not factored the arena or any potential lost revenues into its 2011-12 budget. "It's too early to tell [what the effect will be]," Mayo said.

Eventually, once the arena is up and running in 2013, the authority that operates it may make a payment to the city, county and school district to make up for some or all of those lost property tax revenues, Browne said.

Step 1: Each quarter, the Allentown Economic Development Corp. will use a complex formula to produce a "good faith estimate" of the amount of all state taxes, including personal income, sales, beer and liquor, corporate net income, and capital stock and franchise taxes that have been generated by businesses located within the city's 130-acre Neighborhood Improvement Zone.

Step 2. Allentown will estimate the amount of local earned income tax generated within the improvement zone and remit that amount to the Pennsylvania Department of Revenue. The city will also estimate business privilege tax revenues and licensing fee revenues and remit those amounts to the state.

Step 3: The Revenue Department will direct the state treasurer to transfer the state and local taxes generated within the zone into a separate Neighborhood Improvement Zone fund that will be used to make debt payments on the arena project.

Step 4: The local authority that administers the Neighborhood Improvement Zone will make the scheduled payment on the construction loan used to build the arena complex, and return leftover revenues to the city, state and school district on a pro-rated basis.